Month: November 2019

Have we reached peak gold?

I have read this headline multiple times, but never really listened to the commentary. Now, this isn’t for any specific reason, it’s just that, generally speaking, I really don’t read or listen to much sector commentary.

To start, I think it’s really important to define what exactly peak gold is before discussing it.

Personally, when I think of peak gold, it is a scenario whereby global production and discovery never again reaches the highs of the past; essentially, it’s all downhill from here.

To start, does it matter if this is true?

In my mind, it’s debatable, as gold is very different from almost every other metal. Essentially, all the gold that has ever been mined still exists – it isn’t consumed in the traditional sense.

Bullishness on gold based on supply and demand, therefore, is hard for me to accept because supply is readily available to come into the market at any time.

My thought is that peak gold or, really, peak anything, is just a matter of price.

Price or economics is the ultimate motivator; as we have continually seen throughout history, it pushes innovation.

Oil is a great example.

During the years of +$US100 per barrel, much of the narrative focused on peak oil, which coincidently sounds a lot like what we are hearing about peak gold now.

We are finding less, we have to go deeper and explore in more remote jurisdictions or harsher environments, making it more expensive to extract – we have hit peak oil.

Wrong, high oil prices spurred the innovation of horizontal drilling and, of course, have broadened the discussion on other fuel sources.

Each metal is going to be different, I agree. However, generally speaking, my thought remains that scarcity leads to higher prices and higher prices lead to innovation and/or substitution.

In gold’s case, I think we’re going to see the industry innovate itself in exploration and mineral processing.

Firstly, with regards to exploration, I think it will be geophysics that sees a major revelation in the future.

Pre-drilling exploration work is becoming more and more important in identifying and prioritizing targets and I believe this is where we may see the bulk of innovation.

Second, there’s a large portion of known deposits with refractory gold.  It’s my guess that money will be spent to optimize the mineral processing techniques that are needed to liberate this trapped gold.

As the gold price rises, more and more attention will be given to producing and discovering it – ergo a new renaissance will emerge and gold’s horizontal drilling equivalent will be born.

Or, maybe not. Time will tell!

Today, I have for you my notes from the field from day 2 of my Nevada site visit tour. U.S. Gold Corp was the focus of the second half of the trip and took us to the northeastern portion of the state, near Elko.

Let’s take a look.

U.S. Gold Corp (USAU:NASDAQ)

MCAP – US$18.2 million (at the time of writing)

Shares – 23.6 million

FD – 29.9 million

Cash – roughly $2 million

NOTE: On June 20, 2019 U.S. Gold Corp closed a $2.5 million F Series convertible preferred stock in a non-brokered registered direct offering.

NOTE: U.S. Gold Corp was acquired by Dataram in mid-2016. At the time, U.S. Gold Corp. was in possession of a PEA level Copper King project located in Wyoming.  Keystone project acquired after formation of the new company.

Keystone Project

U.S. Gold Corp.’s flagship Keystone project is located on the Cortez Trend, just south of Nevada Gold Mines’ Cortez Hill mine.

NOTE: Nevada Gold Mines was formed through the merger of Barrick Gold’s and Newmont Goldcorp’s Nevada assets.

Keystone, in its current form, represents the consolidation of what used to be a few different properties and, in total, encompasses 20 square miles or roughly 5200 hectares.

Past operators of these various claim blocks were Newmont, Chevron, USMX, Placer Dome and McEwen Mining Co.

Note: Dating back to the 1980s, a total of 240 shallow, less than 100m deep, drill holes have been drilled on the various portions of the property.

Geochemical and Geophysical Data

Keystone’s geochemical database consists of 7,372 soil samples, 3,414 rock samples, 666 fine-sediment stream samples and 661 altered stream cobble samples.

Along with the strong database of geochemical data, they have also completed regional magnetics on the project.

As the image demonstrates, the magnetics are interpreted to reveal a northwest striking structure. These structures have been confirmed by geological mapping and through geochemical testing.

For example, most of the soil sampling data reveals high concentrations of pathfinder metals within this northwest trend.

The arsenic samples in particular provide us with a clear visual concentration along the northwest trend, and also appear to follow a secondary structure to the southwest.

More data can be found within the Keystone specific page, too – geochemical testing, magnetic report, Keystone Master of Science Thesis, etc.

2019 Drill Program

The 2019 drill program consisted of 7 holes, 6 RC and 1 diamond, totalling 4,000m. The first hole of the program was a follow up on hole 18-09rc, in Sophia Target Zone, from the 2018 program, which encountered over 350m of nearly continuous oxidized breccias, but was lost approximately 1600ft or 500m down hole, due to hitting a 20ft void.

CEO, Ed Karr, explained to me that they were very interested to follow up on this lost hole because of its possible similarities to Nevada Gold Mine’s Gold Rush deposit.

Gold Rush is a deep deposit, with voids or a Swiss cheese like matrix of rock above it. Hence, their excitement. Unfortunately, the follow up hole was a dud, returning mostly clay.

The 6 remaining holes, all RC, were drilled within the Tip Top, Sophia South and Nina Skarn Target Zones.

To date, U.S. Gold Corp. has really had no significant gold intercepts to list, but have shown many intersections with anomalous gold, which they define as greater than 10ppb gold over 50ft thick.

The 2019 drill program continued with similar results, mainly low grade gold over thin widths, except for hole 19-05rc which was drilled within the Nina Skarn Target Zone.

19-05rc intercepted 67.06m of 0.194 g/t gold, which includes intervals of 9.14m of 0.333 g/t gold and 30.48m of 0.273 g/t gold.

Additionally, further down hole, it intercepted 76.2m of 0.224 g/t gold, which includes 25.91m of 0.167 g/t and 25.91m of 0.408 g/t gold, which includes 12.2m of 0.706 g/t gold.

Now, these aren’t high grade hits by any means, but compared to historical results and the bigger geological picture, they may indicate the presence of a larger gold system.

Karr explained that they believe this mineralization is a part of a halo surrounding what could be a  larger, higher grade gold deposit northeast of drill hole 19-05rc. U.S. Gold Corp.’s geologists believe that it’s an intrusion in this northeast area of the property which may have acted as the heat engine for the mineralization intercepted in this hole.

This area between hole 19-05rc and the northeast intrusion will be the main focus of the company’s next drill program, as they try to vector in on what they hope is a high grade gold deposit.

While they have narrowed their exploration focus on Keystone, in my opinion, it’s still akin to finding a needle in a haystack – 2020 drilling at Keystone should be interesting.

Winter is upon them in this mid portion of the Battle Mtn – Eureka / Cortez Trend, and given the mountainous terrain, they will not be able to get drills back into Keystone until next spring.

To add, with roughly $2 million in cash left, U.S. Gold Corp will have to raise more money before conducting next year’s program.

Copper King

The Copper King project is 100% owned by U.S. Gold Corp. and is located in southeastern Wyoming, approximately 32 km west of the city of Cheyenne.

An updated version of the PEA was completed for U.S. Gold Corp. in 2017 and can be found here.

In my discussion with Karr, he indicated that they are working on a PFS for the project and expect it to be complete by mid-year. 

Personally, I’m interested in seeing the mineral processing results, as they will have to use a wider range of samples in their testing, as the PEA met work mainly used high grade material from the centre of the deposit.

Here are the high level highlights from the 2017 PEA:

Gold Price Assumption – US$1275

Copper Price Assumption – US$2.80

Pre-tax NPV@5% – $178.5 million

Pre-tax IRR – 33.1%

CAPEX – $113.66 million

Measured Resource – 13.7 Mt at 0.62 g/t Au (272K oz) and 0.198% Cu (60.1 mlbs)

Indicated Resource – 40.4 Mt at 0.48 g/t Au (654K oz) and 0.182% Cu (162.8 mlbs)

Inferred Resource – 14.1 Mt at 0.38 g/t Au (174K oz) and 0.2% Cu (62.5 mlbs)

Concluding Remarks

Currently, U.S. Gold Corp. has a MCAP of around $25 million CAD and, in my opinion, makes it fairly valued given their assets.

In my view, the bulk of U.S. Gold Corp.’s value is found within their PEA level Copper King project, where I’m happy to hear they are moving forward with PFS level development work.

On the other hand, while the Keystone project has the right address, the visual hallmarks of a prospective Carlin style gold project, it just hasn’t produced the results for me to give it much value.

In saying this, hole 19-05rc may end up being the key needed to discover Keystone’s yet to be found gold deposit.  More time and money is going to be needed to move this forward and prove their current thesis.

As an investor in the junior resource sector, I have learned that it’s integral to protect my downside risk and, therefore, I’m always looking to put my money into companies that are selling for less than their intrinsic value.

As I said, I believe at its current MCAP, U.S. Gold Corp. is arguably selling for its intrinsic value and, therefore, makes it less appealing to me considering the money and upcoming catalysts needed for share price appreciation.

I’m not a buyer of U.S. Gold Corp., but will be adding it to my watchlist, as tax loss season is upon us and who knows where the market may be headed.

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

Until next time,

Brian Leni  P.Eng

Founder – Junior Stock Review

Disclaimer: The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether this is a company and sector that is best suited for your personal investment criteria. I have NO business relationship with any of the companies discussed in this article, however, U.S. Gold Corp. did pay for my site visit expenses. I do NOT own shares in U.S. Gold Corp.

Does successful investing within the junior resource sector start with choosing the right metal?

I’ve said it many times, I believe speculating in the direction of a metal price is essentially impossible to do with any consistency, and shouldn’t be the reason for investing in a junior resource company.

This statement is more controversial than I had imagined and has been challenged many times over the last 3 or 4 months.

Let’s use the gold price as an example. The narrative surrounding higher gold prices can take many forms, but for most people, a higher future gold price is driven by the instability of the global financial system, which has been propped up by quantitative easing and low interest rates throughout the world.

I have no issue with that argument.

However, from 2011 to 2015, the gold price was almost cut in half and, as we all know as junior resource sector investors, besides the 8 month blip in 2016, the juniors, on a whole, have been in a bear market since 2012.

So why the precipitous fall from grace?

• Must have been the miraculous repair of the global financial system.

Not a chance. In my opinion, the global financial system has only worsened over the last 8 years. Countries are more in debt than ever and interest rates continue to be near record lows.

• So, it must be gold supply manipulation by the world’s central banks.

Maybe, but honestly, I find it very hard to accept any thesis on gold supply and demand considering that, essentially, all the gold ever mined still exists.

• US$1900/oz was too high, the market over valued the amount of risk in the global market.

I’m not sure I have heard anyone use that argument to explain the fall in the gold price, but I think that there is some sensibility to it. Personally, though, given where we are today, I think we will see the gold price break US$2000/oz.

When? Great question! I have no idea and there-in lies one of the main issues with metal price speculation.

In reality, given a long enough timeframe, you can be right about the direction of the metal price, however, given the time value of money, are you actually right?

My point with this example is to show that while the popular narrative and the fundamentals of a metal appear to be pointing to a rising metal price, global markets are complex and hard to predict.

Thus, it’s my opinion that especially for the average investor, there’s very little value in trying to guess or follow someone who believes that they can predict the direction of a metal price.

If you’re bullish on the metal, buy the metal – it doesn’t come with the risk associated with the miners, who can lose you money due to a variety of factors that include exploration failure, poor metallurgy or political strife.

Successful investing in junior resource companies is predicated on 3 main criteria: Invest in the best people, protect your downside risk, and be a deep thinker – see through the popular narrative.

Today, I have for you the details from Day 1 of my Nevada Site Visit Tour, where I had the chance to visit Silver One Resource’s flagship Candelaria Project, which is located in the northwestern portion of Nevada, near Hawthorne.

Let’s take a closer look.

Reno, Nevada

On October 28,^th I caught the 6:20am flight out of Toronto to Denver and hopped on a connecting flight which brought me to Reno, Nevada before noon Pacific time.

Unless you’re travelling to Las Vegas, in my experience, Nevada is always multiple flights from the east coast. It’s even worse if you’re flying into Elko, Nevada, which is located in the northeastern portion of the state – it’s been a marathon 3 flights the last 3 times I’ve taken the trip.

Flights aside, I really enjoy this part of the United States. The air is fresh and clear and once you leave the cities and begin to travel into the smaller towns, it’s like going back in time from a number of perspectives.

After landing in Reno, we made the 3ish hour drive south to Hawthorne, where we spent the night. The next morning, it was a short drive to Candelaria and a good review of what Silver One is planning at its flagship asset.

Source: Technical Report

Hawthorne sits directly south of Walker Lake and, interestingly, is home to the world’s largest ammunition depot. The depot covers 147,000 acres and has over 600,000 square feet of storage space within 2,427 bunkers.

Unfortunately, I don’t have a picture to share. You will have to trust me when I say that it’s an amazing sight to see and really confusing if you don’t know what you’re looking at.

Besides being home to the world’s largest ammo depot, Hawthorne is home to 3,000 people.

At our hotel, at least half of the guests looked to be with the mining industry in some shape or form. The other half were older couples, whom I’m sure were using Hawthorne’s Travel Lodge as a stopover on their way to Las Vegas.

Silver One Resources (SVE:TSXV)

MCAP – $44.79 million (at the time of writing)

Shares – 149.3 million

FD – 187.1 million

Strategic Shareholders – Eric Sprott 10.8%, SSR Mining 6%, Insiders 5.5%, First Mining Gold 3.4%

NOTE: Silver One closed a $4.976 million financing at a share price of $0.125 and a 3 year – ½ warrant at $0.20 on July 11, 2019. The PP shares will be free trading very soon and there’s a chance that some buyers may sell their shares and hold the warrants moving forward – FYI.

Candelaria Project

NOTE: Silver One has 1 remaining $1 million option payment on Candelaria, which is due in January 2020 to Silver Standard.  Additionally, under the option agreement, Silver One must assume a $2 million reclamation bond relating to the historic heap leach pads at Candelaria. Instead of coinciding with the last option payment, this will be deferred until January 2023.

Being a past producing mine site, the Candelaria project has great infrastructure. It begins with close proximity to the interstate and a paved road right up to the main gates of the project.

Turning off the interstate, power lines follow you up and into Candelaria, with the sub-station sitting right next to a steel building. This is where Silver One is currently holding samples and other exploration equipment.

Additionally, Candelaria has access to water via wells that produce 500 to 600 gpm, I’m told, and sit in the southern portion of the property.

NOTE: From 1980 to 1999, the Candelaria mine produced 47 million ounces of silver before being closed due to low silver prices.

Historical Resource

The Candelaria project has no 43-101 compliant resources on any of its heap leach pads or deposits – Northern Belle, Mount Diablo, Lucky Hill Mine or Georgine Pit.

Thus, the historical resource table which I have included for your reference should be taken with a grain of salt.

HISTORICAL RESOURCE – NOT 43-101 Compliant

Silver One’s CEO, Greg Crowe, who led much of the discussion during the site visit, mentioned that an updated resource was a priority for the company moving forward.

In fact, most of the drilling this fall will be used to produce a 43-101 compliant resource.

Metallurgy

In terms of priorities, next to setting a base number for Candelaria’s resource estimate, the company will also focus a lot of attention on the project’s metallurgy.

As it stands right now, roughly 30% of Candelaria’s silver is non-recoverable through coarse grinding and cyanide leaching.

Preliminary mineralogical testing suggests that most of this non-recoverable silver is held within jarosite.

Having 30% of your resource non -recoverable is significant and, thus, is why it’s a priority for Silver One to improve.

NOTE: Initial metallurgical results show that 56% of the silver on the heap leach pads is cyanide soluble, leaving 44% in the non-recoverable category.

In my view, the metallurgical work represents biggest opportunity for the company. How or where else can they add that many payable ounces within a year for what is a fraction of the cost and risk of drilling.

Crowe explained that they are focused on finding the optimal milling (grinding) size needed to liberate the silver from the jarosite.

Of course, the amount of milling has to be balanced with the economics of the whole process. It’s one thing to liberate all the silver out of the jarosite, but if you need $50 silver to do it, is it worth it?

It will be very interesting to watch for these results, and much like the resource estimate, see what silver price is needed for this to be economic.

Drill Targets

Next to the Candelaria’s priority work, the resource estimate and metallurgical testing, there are some interesting exploration drill targets across the entire property.

I will draw your attention to the image above, which gives us a top view of the project.

The Northern Belle and Mount Diablo pits are labelled and sit on either side of the red circle.

The first 2 targets are the most obvious. Silver One will be drill for down dip extensions, which I have represented using red arrows, on both pits.

Second, both deposits will be drilled for lateral extensions, specifically in between the 2 pits to see if they connect. Represented as the area within the red circle.

Historic Silver Standard Drilling

Historically, Silver Standard did hit silver mineralization in a number of holes in between the 2 pits, represented as stars in the image above.

Georgine Pit

Now let’s take a look at the more abstract exploration targets at Candelaria.

In the image above, I have circled the next most prospective area within Candelaria.

This region of the property is interesting as it either represents a parallel or off-set mineralized structure to that which hosts Northern Belle and Diablo.

Currently, there are 2 known past producing pits in this area – Georgine and the Lucky Mine. Both are small, but when mixed with the magnetic anomaly the company has identified, could represent a much bigger system.

I couldn’t find a picture, but Crowe mentioned that the magnetic anomaly lies just north of the Georgine pit. Given this, they subsequently staked more ground along the north claim boundary you see in the image above. The new claim block represents an area of approximately 8 square kilometres.

Another interesting note on this area is the grab samples they have found. Crowe showed us one of the high grade copper, low grade gold samples they found in the immediate area surrounding Georgine.

Sample found near Georgine Pit

Crowe speculated about the possibility of there being an Iron Oxide Copper Gold (IOCG) deposit in this area.

They plan to follow up the grab sample with an IP survey, which could shed some light on any concentrations of sulphide mineralization in the area.

Concluding Remarks

It was a good site visit to Silver One’s Candelaria project, I believe I have a good understanding of where the company is and where they are headed.

I look forward to seeing the initial drill results from the company, which I am sure we will see before the end of the year. Additionally, more geophysical work on the new claim block and area surrounding Georgine pit should be really revealing to what may be there.

I, however, am not a buyer of Silver One Resources at this point; as there are a number of questions I have yet to answer.

First, will there be an onslaught of selling as this summer’s private placement shares become free trading?

Second, the metallurgical work is a HUGE part of this story and, really, I think, will be the main factor in classifying it as a good or great project.

Silver One has been added to my watchlist, as I eagerly await drill and preliminary met work results.

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

Until next time,

Brian Leni  P.Eng

Founder – Junior Stock Review

Disclaimer: The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether this is a company and sector that is best suited for your personal investment criteria. I have NO business relationship with any of the companies discussed in this article, however, Silver One Resources did pay for my site visit expenses. I do NOT own shares in Silver One Resources.